Monday, April 30, 2012

The "FreedomWorks for America" PAC has launched an ad campaign against the Republican Senators Orin Hatch from Utah and Richard Lugar, who are viewed as too moderate. Their campaign commercials "strain" facts according to FactCheck.org

Hatch has a lifetime rating of 89.7% from the reactionary American Conservative Union and a 100% rating for 2011. conservative.org/ratings FreedomWorks is one of those outfits that would have preferred that the U.S. default on its debt rather than increasing the debt limit.

The GOP is moving ever closer to achieving its Ayn Rand vision for America. Paul Ryan And Ayn Rand The Ryan budget, recently passed by the House with no Democrat votes, is consistent with that movement. The GOP makes no secret of its desire to slash tax rates even more for the wealthy while slashing programs for the poor and middle class. NYT; Center on Budget and Policy Priorities

In the end, it will be the poor and the middle class who will pay for the Bush era tax cuts and the additional ones now proposed by the GOP in the event of their enactment. When the Bush tax cuts were fully in effect, 67% of the tax cuts went to the richest 20% and 15.3% to the top .1% of households. (Tax Policy Center: Individual Income and Estate Tax Provisions in the 2001-08 Tax Cuts) Their cumulative effect over one decade was to increase the national debt by about 3 trillion.

When the day of reckoning comes, and it will come, those who received little or nothing from the Bush tax cuts will suffer a reduction in benefits and higher taxes. I view that outcome as inevitable, and the movement toward that resolution is already being proposed by the GOP, though few have seemed to notice.

The GOP's movement toward the Ayn Rand vision accelerated in 1994, with the election of a new generation of "extremist" and "radical" republicans, terms used in Simon Johnson's new book "White House Burning". Back then, Newt Gingrich, who was the leader of the extremists in the House, was willing to shut the government down and to cause a government debt default, unless Clinton agreed to their proposals that would slash spending on social programs while granting the rich even more tax breaks. The same scenario was played out again last year.

The goal of the modern day GOP was aptly expressed by Grover Norquist, who stated that the "goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub". The Nation Those spending cuts are not coming from defense.

The worst possible outcome for the GOP would be to achieve success in actually implementing their vision. In a few years thereafter, it would be difficult to convince independents and non-TB republican middle class voters that this vision is meant to help them in anyway. Its purpose is to roll back progressive legislation adopted over the past 80 years primarily for the purpose of making the rich even richer.

Their plan to end traditional Medicare for those under 55 and to replace it with a voucher for the purchase of private insurance did not go unnoticed here at HQ. GOP's Plan To Bankrupt the Middle Class That plan would cost those seniors twice as much as traditional medicare, and the middle class is not saving enough for retirement to pay that added burden. The math simply does not work for them.

This is not to say the Democrat party has a plan to meet the obvious fiscal train wreck lurking in our future. Their vision basically entails using the tax code to transfer wealth to their constituents. Rather than acting now to shore up Medicare and Social Security, their two great achievements as a political party, for the baby boom generation, they embark on yet another social welfare program likely to dig the fiscal hole even deeper.

The most basic problem is that the Ayn Rand party is highly rigid and ideological unlike the traditional republicans that they want to replace altogether. The Ayn Rand Party will not compromise on taxes, and the Democrats are not going to slash spending on social welfare programs without tax increases on the wealthy and the closing of tax loopholes.

The government's first estimate of first quarter GDP inflation adjusted growth was 2.2%. News Release: Gross Domestic Product Defense spending fell 12%. Consumers, however, increased their spending at a 2.9% annualized rate. Housing, which had been a major drag, made a .4% contribution to GDP growth.

Last Friday, Procter & Gamble released poor results for its fiscal third quarter ending 3/31/12. While I do not own the stock, I do have it on my monitor list for a possible purchase. I viewed the results to be sufficiently awful to lower my target price for a possible re-entry to less than $57. My prior target price was less than $60. The analysts were unusually confrontational during the conference call, as noted in a WSJ article.

PG shares declined 3.63% last Friday to close at $64.44. I have already sold shares bought at $47.49 and at $52.85. Both of those purchases were made in 2009, with the lowest cost one executed in March 2009.

EDGEN GROUP (EDG) stock had a disastrous debut last Friday. Originally, the underwriters were expecting to sell stock within a $14 to $16, but had to cut the IPO price to $11 to get the deal done. Edgen Group IPO On the first day of trading, the stock did not have a tick above that $11 IPO price, trading in a range between $8.87 to $10.44 on over 9 million shares. The closing price was $9.05. As I have mentioned, I have no interest in the stock.

As of 3/31/2012, the net interest margin was 3.62%; the efficiency ratio was 59%; NPAs to total assets was .58%; the allowance for loan losses to NPLs was at 143%; the tangible equity to tangible assets ratio was 8.8%; and the core return on average assets for the quarter was .94%.

2. Sold 60 HBNC at $24.96 Last Wednesday(Regional Bank Basket Strategy)(see disclaimer): This stock went parabolic to the upside after Horizon announced its first quarter earnings. I discuss that report in Item # 3 HBNC.

On 4/13/12, the stock closed at $17.66, slightly above my purchase price of $17.55 (3/29/12 Post). The stock then did a moon shot, closing at $25.19 on 4/25/12. HBNC Historical Prices

I had tried to buy 100 shares at a limit price of $17.55 in late March, and had a fill for only 60 shares. This stock has typically had very wide bid/ask prices, and it is against my religion to hit the ask price in those circumstances.

At certain times last Wednesday, the bid/ask spread had widened to more than a $1. I entered a limit order to sell 60 shares at $24.95, when there was a 100 share bid at $24.95 and 400 shares offered at $25.40. I received a fill for only 31 shares at $24.95, and the bid then sank immediately to $24. After a few small trades in the $24 to $24.5 range, the stock moved back up, and filled the remaining part of my order (29 shares) at $24.97, as the stock moved back across $25:

2012 HBNC 60 Shares +$428.68

It is impossible to give the OG a parabolic gain of almost 50% in three weeks without a harvest of that gain. Even after that moonshot, however, the stock is still selling at less than 10 times the $2.84 share consensus estimate for 2012, HBNC Analyst Estimates The result reached in this transaction is one of the benefits inherent in value investing, though it is unusual to receive that benefit so quickly.

Realized gains from stock sales now stands at $8,892.24 for this basket strategy, see snapshots at REGIONAL BANK BASKET STRATEGY GATEWAY POST. Over the life of the strategy, I anticipate that dividends will provide about 40% of the total return.

3. Financial Institutions (own 50 shares:Regional Bank Basket Strategy): Financial Institutions reported first quarter net income of $5.8 million or 42 cents per diluted share, up from 33 cents in the 2011 first quarter. The consensus estimate was for 39 cents.

As of 3/31/12, the net interest margin was 4.05%; the efficiency ratio was 58.59% (down from 60.55% as of 12/31/11); total NPLs to total loans stood at .54%; the allowance for loan losses to NPLs was at 289%; the tangible equity to tangible assets ratio was at 7.64%; and the total risk-based capital ratio was 13.47%.

4. First Financial Bancorp (own 103+ shares:Regional Bank Basket Strategy): First Financial Bancorp reported first quarter net income of $17 million or 29 cents per share, down from the 2011 first quarter net income of $17.2 million. The consensus estimate was for 30 cents. This was uninspiring. The primary benefit of this stock is its dividend. The company pays a base dividend of 15 cents per quarter (just raised from 12 cents) and a variable dividend representing the difference between the base dividend and the E.P.S. number for the prior quarter. So, the next quarterly dividend will be 29 cents combining the base and variable rates.

This bank has excellent capital ratios:

As of 3/31/2012, the net interest margin was 4.51%, which is excellent (up from 4.32% as of 12/31/11); NPLs to total loans stood at 2.42% (prefer less than 1%); the allowance for losses to NPLs was 68.64% (prefer to see over 100%); and the return on average assets for the quarter was 1.05%.

5. Bar Harbor Bankshares: (own 50 shares:Regional Bank Basket Strategy):Bar Harbor Bankshares reported net income of $3.2 million for the first quarter, or 81 cents per share, up from 74 cents in the 2011 first quarter. The estimate made by one analyst was for 72 cents per share.

As of 3/31/12, the net interest margin was 3.3%; the efficiency ratio was 53.4%; tangible book value was $30.32 per share (up from $26.5 on 3/31/11); the return on average assets for the quarter was 1.07%; NPLs to total loans stood at 1.49%; the allowance for loan losses to NPLs was 73%; the tangible equity to tangible assets ratio was 9.61%; and the total capital ratio was 15.94%.

Bar Harbor was a recent addition to this basket strategy and has done very well since my purchase. Bought 50 BHB at $30 (2/10/12 Post)

As previously noted, I view the IPO to be a positive for the owners of the senior secured bond issued by the Edgen Murray Corporation, maturing in 2015, which is guaranteed by Edgen Murray II and its existing and future U.S. subsidiaries that are 80% owned by EM II, as discussed in the Bond Prospectus and in the 2011 EM II Annual Report as follows:

2011 Annual Report Summary of 2015 Senior Secured EMC Bond

The relationship of these entities after the Edgen Group IPO can be found at page 12 of Amendment No. 6 to Form S-1 filed 4/24/12 by the Edgen Group.

First Commonwealth (FCF), a LT selection, increased its quarterly dividend to 5 cents from 3 cents, and reported net income for the first quarter of $11.1 million or 11 cents per share (up from 5 cents in the year ago quarter).

Bankrate.com has an article on the four riskiest places to swipe your debit card and to enter your pin. Just as a precaution, I have a separate checking account tied to a debit card and I will generally keep the funds in that account at relatively low levels. Whenever I need funds, I will move some money online from another checking account, with a much higher balance, where I do not use a debit card.

Prospect Capital (own common) sold $100 million of 6.95% senior notes maturing in 2022, and expects to list that bond for trading on the NYSE. Prospectus I have no interest in the bond anywhere near its par value, but will place it on my monitor list for exchange traded bonds. As with other bonds traded on the stock exchange, this security will trade "flat", meaning that buyers will not have to be accrued interest to the seller upon purchase. Instead, like a common stock, the owner of the bond on the ex interest date will receive the interest.

The market reacted negatively to Symmetricom's earnings report for its third fiscal quarter which missed expectations by 3 cents. Free cash flow was reported at $6.8 million. The company also guided down its fiscal 4th quarter to $.07 to $.12, compared to the consensus estimate of 14 cents. The company used $4 million in cash to repurchase stock during the last quarter. Cash and cash equivalents increased to $61.5 million as of 4/1/12 from $58.1 as of 1/1/12. SYMM is owned in the LT basket.

1. FirstMerit (FMER)(own:Regional Bank Basket Strategy):FirstMerit reported net income for the first quarter of $30.3 million or 28 cents per share, up from 25 cents in the year ago quarter. The consensus estimate was for 25 cents.

As of 3/31/2012, the net interest margin was 3.78% (down from 4.01% in the first quarter of 2011); the efficiency ratio was 65.52% (up from 64.37% in the year ago quarter); NPAs to total assets stood at .87% (down from 1.61% as of 3/31/11); the allowance for loan losses as a percentage of NPLs was 194.83%; the tangible equity to tangible assets ratio was 7.86%; and the return on average assets was .84%.

2. Bought 100 Windstream at $11.195 Last Tuesday(see Disclaimer): Given the dividend yield of this common stock, I am content to collect the dividends and to sell the stock at any profit. Last year, I sold out of my Windstream stock position and was pleased to realized a net gain of $189.67. Those shares were sold at $12.31 (August 2011)

2011 Windstream 300 Shares + $189.67

After selling the stock I bought 3 Windstream senior bonds that yielded less than the common stock and later sold them at a profit:

The current quarterly dividend is 25 cents per share. At that rate, the dividend yield would be about 8.93% at a total cost of $11.2. That is a higher yield than the Windstream senior bonds. Of course, unlike the senior bonds, whose owners are entitled to receive timely interest payments at a fixed rate, WIN has no legal obligation to pay any common stock dividend. While that is an important distinction to keep in mind, the Windstream stock can be viewed as similar to a bond without the legal protections afforded to bond owners. From my perspective, I have identical objectives with both the WIN common stock and bonds, which is to collect the distributions without suffering a diminution in total return due to a loss in principal. So, I am content to make the distribution yield for both securities and to sell at any profit.

And, the qualified dividend has a tax rate that is currently significantly lower than the highest marginal rate applied to interest income. This may change next year.

I did review the S & P report on WIN. That firm rates the stock with five stars and a $14 price target. Morningstar has the stock rated 3 stars with a $6 consider to buy target. Without question, a negative for the stock is Windstream's exposure to the declining land line business. I would not consider the stock to be acceptable as a long term hold for that reason and a few others, including its large debt load, which was over $9 billion as of 12/31/2011. 2011 10K

Compared to the 4th quarter of 2011, the net interest margin declined to 3.96% from 4.06%, and the efficiency ratio increased to 59% from 57.2%. Both of those numbers are going the wrong way.

As of 3/31/12, NPLs to total loans stood at .92%; the return on assets for the quarter was 1.14%; the tangible equity to tangible assets ratio was 7.7%; and the allowance for loan losses to NPLs was at 132%.

I am not reinvesting the dividend.

The bank anticipates closing in the third quarter of 2012 the purchase of 19 branches in its core NY state market from FirstNiagara and HSBC. CBU has already raised the funds for that purchase by selling 2.13 million shares at $27. SEC Filing Some of the drag for this last quarter, and possibly the next two, will be those funds sitting around on the balance sheet earning very little.

I was reinvesting the dividend. I changed that option to payment in cash this week. That decision is based primarily on the P.E.G. ratio. It is also based on the increase in the efficiency ratio to 72.19% from 68.92% as of 12/31/2011, and the return on average assets number of .57%.

More positive metrics include: the 1.33% ratio of NPLs to total loans (down from 1.56%); the allowance for loan losses as a percentage of NPLs at 145.15%; and the capital ratios:

5. Sold 200 FOFI at $7.31 Last Tuesday(see disclaimer): This sell was a spur of the moment kind of decision. I just bought these shares at $6.77. FOFI is a CEF that owns a lot of regional banks directly or through its interest in certain hedge funds. After reflection, I will simply focus on buying my own positions in this sector, rather than pay someone else to do so.

I used the proceeds to add to my regional bank basket, but it will be late next week before I get around to discussing that buy.

Jim Cramer had some positive comments about EBAY last night. eBay closed at $39.86 yesterday and rose another 54 cents in after hours trading. Back in March 2009, Eric Savitz wrote a negative article in Barrons, calling the stock a value trap at 8 times estimated 2009 earnings. I mentioned then that I would buy some shares since Eric was "one of my contrary indicators". Savitz on Ebay The stock was then selling at less than $12 per share. While I made a good buy on EBAY, I allowed my magic coin to dictate when to sell. I may need a new magic coin.

PolitiFact rated as true a representation by Senator Portman (R) that this change would raise less than $5 billion per year. The Committee on Taxation estimated that the Buffett Rule would raise $46.7 over the next ten years. With the size of the budget deficits, this tax code change would be immaterial in isolation from other tax law changes designed to raise federal revenues as well as spending cuts. While Portman is correct in noting that $46.7 billion over ten years is not material, that is not a justification for refusing to pass the bill. Instead, it only highlights the problem in Washington.

I would view myself as a conservative on fiscal issues. Given the magnitude of the government's fiscal problems, the solution is fairly obvious, spending cuts and revenue increases lasting for at least a decade, provided those actions are taken now, which is not going to happen. There would be widespread support for revenue increases equal to about 1/3rd of the spending cuts. Since both political tribes, egged on by their constituent members, have proven their inability to deal with the problem, and will likely continue to make the problem worse, the solution will probably be forced on the U.S. by its creditors in a far more draconian manner than a sensible solution now.

1. Trustco (own:Regional Bank Basket Strategy):TrustCo reported net income for the first quarter of $8.9, up 20.7% over the prior year quarter. The E.P.S. number was $.095 which was down from the $.096 number for the 2011 first quarter. The reason for the lower E.P.S. was due to a significant increase in the share count.

TrustCo sold a large number of shares last year, and I was critical of that transaction. Item # 1 TRST The bank sold 15.640 million shares at $4.65. form8k Since the bank did not participate in TARP (p. 12 form10-k), it did not need to issue stock to fund the buyback of the government's preferred stock.

Since this transaction was dilutive to existing shareholders, accomplished at prices last prevailing in 1995 (TRST Interactive Chart), and undertaken for no good reason in my opinion, I voted against the Board and will continue to do so for as long as I own shares. I will also vote against management compensation packages. LB is not a forgive and forget kind of investor.

As of 3/31/2012, the net interest margin was 3.23%; the efficiency ratio was 52.51%; the tangible equity to tangible assets ratio was 7.87%; NPLs to total loans stood at 2.03% with a coverage ratio of 94.9%; the return on average assets was .84% (prefer to see over 1%); and the dividend payout ratio was 68.91%.

I am reinvesting the dividend to buy additional shares. The primary reason for owning this bank's stock is the dividend. I own the shares in two taxable accounts, with one account having 287+ shares and the other at 157+. The holdings in the later account are profitable, and I may dispose of them above $5.75 per share based on my reaction to selling shares at $4.65 for no good reason in my judgment.

Trustco Bank closed at $5.6 yesterday. At a total cost of $5.6, the dividend yield is about 4.69%.

2. FNB (own 50 Shares:Regional Bank Basket Strategy):F.N.B. Corporation reported net income of $21.6 million for the first quarter, or 15 cents per share. That number included 4 cents per share of merger and severance costs. Excluding those items, the bank reported an adjusted E.P.S. of 19 cents.

The consensus estimate was for 19 cents.

As of 3/3112, the net interest margin was 3.74%; the efficiency ratio was 61%; NPLs stood at 1.41% of total loans; the allowance for loan losses to NPLs was 92.95%; the return on average assets was .75% for the quarter; and the estimated total risk based capital ratio was at 12.2% (down from 13.4% as of 12/31/2011).

After buying and selling shares, I am left with my lowest cost shares bought at $7.8.

I have kept this position just for its income generation. My unrealized gain has already turned into a long term capital gain. If the shares decline to below $7.8 in a stock market correction, I would consider adding to the position again. The one year chart show a bottom being formed over a two month period last August-September between $8- $9, a bounce off that bottom and a new range bound movement largely between $11.5-$12.5. FNB Interactive Chart

F.N.B. Corp. rose 9 cents yesterday to close at $11.45. The dividend yield is about 4.19% at a total cost of $11.45. At my purchase price of $7.8, the yield is about 6.15%. The dividend has been 12 cents a quarter (48 cents annually) since it was cut in half from 96 cents in January 2009. SEC Filed Press Release The stock was traded over $20 per share in 2008 before plummeting to the $6 range in March 2009.

As of 3/31/2012, the net interest margin was 3.7%; the efficiency ratio was 60.95%; NPLs to total loans stood at .54%; the allowance for loan losses to NPLs was at 334.5%; the total capital to risk weighted assets ratio was at 15.7%; the Tier 1 capital ratio to risk weighted assets was 14.5%; the Tier 1 capital to average assets ratio was 9.1%; and the return on average total assets was .88%. Those capital ratios are good and are not supported with equity preferred stock issued to the government.

As a reminder for anyone following this bank, the dividend was not cut during the Near Depression. However, the quarterly dividend rate has remained at 23 cents per share from June 2005 to date. Bridgehampton National Bank | Dividends The stock traded as high as $29.48 in 2009; $27.94 in 2010; and $26.04 in early 2011 (intraday on 1/3/11). BDGE Historical Prices The E.P.S. numbers remained close to flat during the Near Depression period (2008-2010: $1.41-1.45, page 14 2010 10k). This bank operates in Suffolk County, Long Island and currently has 20 retail branch locations. Map of Bridgehampton National Bank Locations BDGE did not participate in TARP. SEC Filed Press Release

4. RadioShack (own 2 bonds and common as a LT): RSH reported a first quarter loss of $8 million or 8 cents per share on a .9% decline in revenues to $1.01 billion. SEC Filed Press Release The consensus estimate was for earnings of 4 cents per share on revenues of $1.06 billion. The company had adjusted earnings per share of 31 cents for the first quarter of 2011. Same store sales for RSH owned stores and Target Mobile centers declined 4.2%. The President of RSH called the results disappointing and investors certainly agreed with him.

I would reiterate my earlier contention that this company needs to eliminate its common share dividend. The company also needs to cease purchasing its common stock. During the first quarter of 2012, RSH purchased 57,589 shares at $7.18 and 21,502 shares at $7.02. (page 24 form10q) In 2011, the company purchased 6.3 million shares, using $101.4 million, page 23.

The dividend is not providing any support to the stock price.

The only positives in my view is that the company still has $566.4 million in cash and cash equivalents; had no borrowings under its $450 million dollar credit facility; and claims free cash flow of 24.9 million in the first quarter (page 21 10-Q). The total long term debt was $674.9 million as of 3/31/2012. The relationship between cash and debt gives me some solace that RSH has the time to right the ship.

However, if RSH continues to buy stock and pay generous dividends, it may start a cycle of increasing debt dependence which could threaten its survival at some point. So far, the Board has shown no inclination to preserve capital by eliminating the dividend and stock purchases.

In this regard, I would add that RSH's busted convertible, with a 2.5% coupon, comes due on August 1, 2013. The outstanding amount of that note is $375 million or more than 1/2 of RSH's long term debt. (page 50, form10k12/31/11)

The 2011 total compensation package for Radioshack's President James F. Gooch, was $5,870,078, an absurd amount considering that the stock has hit an all time low under his tenure. The stock had a closing price of $8.375, adjusted for subsequent splits, in January 1982, RSH Interactive Chart, before the onset of a long term secular bull market which started later that year.

On the day of this earnings report, the 2019 sank about 2.6%, whereas the common stock declined 10.55%.

After this dismal and pathetic earnings report, Fitch downgraded the 2019 bond to B- from B+. TEXT-Fitch I also received an email notification the Moody's downgraded this bond to B1 and kept the outlook as negative. I would not quarrel with those downgrades.

I thought that this article at Seeking Alpha, written by a young investor, contains an intelligent criticism of RSH's strategy and their current management.

Wednesday, April 25, 2012

Xerox, a LT selection, reported adjusted earnings for the 4th quarter of 23 cents per share on revenues of $5.5 billion and reaffirmed its 2012 guidance for an adjusted E.P.S. of $1.12 to $1.18. SEC Filed Press Release

Markit's manufacturing index for Germany declined to 46.3 in April from 48.4 in March. This is a new 33 month low. Markit Any number below 50 indicates a decline. The Eurozone Manufacturing PMI sank to 46, a 34 month low. PressRelease

Banco Santander (STD) was put on the GS's conviction buy list and upgraded to overweight at J P Morgan. MarketWatch

Health Management, a LT selection, reported adjusted earnings per share of 24 cents for the first quarter, up from 22 cents in the year ago quarter. Same hospital revenues increased 5.7% to $1.326 billion. The consensus estimate was for 21 cents.

Home prices fell .8% in both the 10 and 20 metropolitan areas according the Case-Shiller release yesterday. Prices are about where they were in 2002 for the 20 metropolitan area index. On a non-seasonally adjusted basis, the two largest month-over-month declines were Chicago and Atlanta at -2.5%.

Fortunately for the entire stock market, Apple reported good results after the close yesterday.

1. Washington Trust (WASH)(own 50 shares:Regional Bank Basket Strategy):WASH reported first quarter net income of $8.4 million or 51 cents per share, up from 42 cents per diluted share in the 2011 first quarter. The consensus estimate was for 48 cents.

As of 3/31/12, the net interest margin was 3.27%; the tangible equity to tangible assets ratio was at 7.53%; the total risk based capital ratio was 13.22%; return on average assets was 1.14%; nonaccrual loans to total loans stood at .9%; and the allowance for loan losses to nonaccrual loans was 154.88%.

2. Sterling Bancorp (STL)(own 88 common shares as part of the Regional Bank Basket Strategy and 200 shares of the TP STLPRA-ROTH IRA):Sterling Bancorp reported net income for the 2012 first quarter of $4.8 million or 15 cents per share, up from 12 cents in the year ago quarter. One news service claimed that the E.P.S. number beat expectations by 1 cent, while YF had the consensus at 15 cents which would be a meet rather than a beat.

As of 3/31/12, the net interest margin was 4.07%; nonaccrual loans to total loans stood at .43%; the allowance for loan losses to nonaccrual loans was 313.55%; the tangible equity to tangible assets ratio was 8.17%; and the total risk based capital ratio was 13.15%.

I recently bought back a minor position in STL at $8.98. I previously sold 50 share at $10.5 bought at $6.58.

3. First Community Bancshares (own 50 shares:Regional Bank Basket Strategy):First Community Bancshares reported net income of $5.72 million available to common shareholders, or 31 cents per share for the first quarter, down 1 cent from the 32 cents per diluted share earned for the 2011 first quarter. Core earnings per share for the 2012 first quarter was 32 cents, up from 30 cents. The consensus estimate, made by 4 analysts, was for 27 cents.

The efficiency ratio improved to 57.18% from 63.43% in the 2011 first quarter.

As of 3/31/12, the net interest margin was 3.91%; NPLs to total loans stood at 1.97%; the allowance for loan losses to NPLs was 94.56%; the total risk based capital ratio was 18.72%; and the "core" return on average assets was 1.15%.

FCBC is a minor position in the regional bank basket strategy. I bought back 50 shares at $12.5 after selling 50 at $14.44.

4. United Bancorp (UBCP)(own 161+:Regional Bank Basket Strategy):United Bancorp, a very small bank operating in Ohio, reported net income for the 1st quarter of $760,833, up 3.1% from the year ago quarter. The E.P.S. number was 15 cents. The current quarterly dividend is 14 cents per share. The payout ratio continues to be uncomfortably close to 100% at 93.33%.

As of 3/31/2012, the net interest margin was 3.97% (down from 4.18% in the 2011 first quarter); NPLs to total loans stood at 1.63%; the allowance for loan losses to NPLs was at 64.09%; and the return on average assets was .71%.

The Board of United Bancorp recently declared the regular quarterly dividend of 14 cents per share. I am reinvesting the dividend to buy more shares. I have bought 150 shares in three 50 share lots, and have acquired another 11+ shares through reinvested dividends. All shares are held in one of my satellite taxable accounts.

Tuesday, April 24, 2012

Romney claims that Obama's EPA is interfering with "personal freedoms". In that context, the GOP generally means the freedom to pollute. As proof of his contention, Romney cites an EPA action taken, not during Obama's administration, but during the administration of George Jr. FactCheck.org The EPA action was affirmed by a federal district court judge who was appointed by Daddy Bush. All of those actions were taken before Obama became President. The Supreme Court did overturn the EPA's action during the Obama Presidency. I would certainly agree with the 9-0 Supreme Court's decision overturning the EPA's action in this matter. (supremecourt.pdf). But that does not excuse Mitt misleading the public with his claim. Misleading and false assertions by this politician are the norm for him.

A similar misleading claim was made last week by Romney when he attempted to blame Obama economic policies for the closing of a drywall factory in Ohio. The factory closed during George Junior's administration. NYTCNN

A few months ago, I did an analysis of job creation during Bush Junior's presidency using labor department data. The jobs record under that President was without question the worst in modern American history (starting with Truman). While Bush started his first term during a recession, he was preparing to leave office when the economy first started to shed jobs in a major way.

Whoever became President in 2009, it would have been an unavoidable jobs debacle. I did an analysis, where I did not credit Bush with the jobs losses in the first year of his presidency, but did credit him with the losses in 2009. The net result was a net job loss of 184,000 over an eight year period.That analysis is done with the Labor Department's data. Bush Tax Cuts and Jobs During the much maligned 4 year administration of Jimmy Carter, whose job performance is ridiculed by all GOP tribe members and even by most Democrats who admit to voting for him, 10.5 million jobs were created.Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ

But I would like to address the broader issue raised by Romney and that Ohio drywall factory. Throughout my life, the home construction business has gone through boom and bust cycles. This would include both the homebuilders and their suppliers. The last boom cycle lasted for an abnormally long time, roughly from 1992 to 2007 in most areas. The cycle was prolonged several years by the improvident extension of credit resulting in an unsustainable rise in housing prices. Needless to say, the bubble burst before the Beanpole became President, though I am sure now that many have forgotten the year of his inauguration.

My father was a homebuilder and a successful one. I never heard him blame anyone in Washington for the boom and bust cycles occurring prior to his retirement in 1987. For him, the only important factual question about those cycles, viewed as inevitable, was whether a bust was coming or had already started, in which case he needed to scale back in order "to live and fight another day".

However, the federal government and both political parties share part of the blame for the last housing bust. Those acts include the 2004 SEC Rule Change, approved by representatives from both political parties, that allowed investment banks to vastly increase their leverage to equity ratios. Another important failure involved inaction, the total inability to adopt any meaningful regulations that would have curtailed abuses in mortgage originations. If you had a pulse, you could get a mortgage loan and that easy credit drove home prices to levels that could not be justified based on real incomes. msnbc.com; Top Twelve Causes of the Not So Great Depression (March 2009 Post).

{If LB had absolute power in the U.S., it could have adopted a few regulations that would have prevented the housing meltdown, but neither political party would agree with those modest proposals even now. Some of those include the following: (1) a minimum down payment of 5% so that the borrower has skin in the game; (2) no mortgages can be given when the total payments exceed 32% (possibly 33%) of the borrower's provable personal income unless the mortgage originator keeps the mortgage (3) interest only loans would be prohibited and (4) the Supreme Law prevailing throughout the U.S. would be that a lender could collect a deficiency judgment from a defaulting borrower in order to prevent strategic defaults. You sign a note, then you have to pay from all assets and earnings short of having the obligation discharged in bankruptcy. That would at least give some borrowers second thoughts about over-extending themselves. Item # 2 Delays in Foreclosure Encouraging Defaults}

The criminal trial of Feeling Pretty John Edwards, a former Democrat VP candidate and U.S. Senator, began yesterday. CNN

During an election cycle, I will keep a remote control nearby whenever I watch television. I will immediately change the channel whenever a station starts to air a political ad, irrespective of who is sponsoring the ad. As a general rule, political ads are frequently misleading and event fraudulent in their claims. It is best to ignore them altogether, particularly those originating from Super PACs, funded by secret donors, with names like "Endorse Liberty", "Restore Our Future" or "FreedomWorks for America". Super PACs | OpenSecrets

Spain is officially in recession with two consecutive quarters of negative GDP numbers.

Berkshire Hills Bancorp (own) completed its acquisition of the Connecticut Bank and Trust Company. CBT had 8 branches in the Greater Hartford area.

1. General Electric (own 500+ shares): GE beat both on the top and bottom lines for the first quarter. The company reported net income of $3.03 billion, or 29 cents per share, on revenues of 35.2 billion, higher than the consensus forecast of $34.7 billion. Adjusting for one time items, the E.P.S. number was 34 cents, beating the consensus estimate by 1 cent. Organic growth in its industrial segment rose 11% in the quarter (see page 9). GE Capital earned $1.8 billion. Infrastructure orders were at a record high in the first quarter, up 20% from the prior year. SEC Filed Press Release

I am reinvesting the dividend to buy additional shares and will likely continue doing so until the price exceeds $25 per share.

GE shares sank 29 cents yesterday to close at $19.07.

2. National Penn Bancshares (own TP and common as LT): NPBC reported adjusted net income of $24.2 million or 16 cents per share, beating the consensus by 1 cent. SEC Filed Press Release For the 1st quarter, return on average assets was 1.16%, and the net interest margin increased to 3.55% from 3.49% in the prior quarter.

As of 3/31/2012, the efficiency ratio was 57.47%; the total capital ratio was at 18.72%; the Tier 1 leverage ratio was 12.52%; and the allowance for loan losses to NPAs and loans 90+ days past due was at 160.7%; and delinquent loans to total loans +leases was at .46%.

3. Bought 50 MTOR at $6.55(see Disclaimer): Meritor was downgraded last Friday to Market Perform by Avondale Partners, and the price target was slashed to $8 from $15. I do not have access to that research report. I do have access to my instructions to average down on my position when and if the stock fell below $6.8. The Avondale downgrade caused a downdraft in MTOR stock which triggered a 50 share average down at $6.55.

I recently acquired the other 50 shares at $7.62. While I am frequently criticized for buying small lots, I would note that 50 shares buy at $6.55 and $7.62 is better than a 100 or 200 share buy at $7.62.

Meritor recently affirmed its guidance for fiscal year 2012. SEC Filed Press Release That guidance was for adjusted earnings per share of $1.08 to $1.39.

Some data from the Key Statistics Page at YF Based on a $6.5 Price and MTOR Data as of 12/31/11:

The five year chart is ugly. I would call it a fairly typical chart pattern for a company with a lot of issues, but with some potential, a roller coaster ride, which is fine provided the next move is up: MTOR Interactive Chart

A positive article on MTOR, focusing on its valuation, can be found at Seeking Alpha.

Monday, April 23, 2012

I thought this was an interesting cartoon on the trickle down economic theory, used to justify more tax breaks for the wealthy who contribute mucho money to those politicians who advocate it.

An article inBloomberg pointed out that Governor Scott Walker of Wisconsin promised voters 250,000 jobs with his business tax breaks but the state instead lost 16,500 jobs. As noted in that Bloomberg article, Walker was criticizing the governor of Illinois for "killing jobs" when Illinois had created 32,000 jobs in the past 12 months. Tennessee has 44,000 more jobs now than at the beginning of the year. Regional and State Employment and Unemployment Summary

The Vatican has taken over the largest group of American nuns due to "serious doctrinal problems". NYTCBS News A bishop was appointed to take over the nuns' organization. The Vatican believed the nuns were promoting "radical feminist themes", such as supporting Obama's healthcare legislation and allegedly questioning the male-only priesthood. Support of Obama's healthcare program, in opposition to the clear directives given by the bishops, was apparently tantamount to a sin. A bishop recently compared Obama to Hitler and Stalin for including contraceptives in health insurance.

The NYT published the findings of its investigation into widespread corruption at Wal-Mart de Mexico, and the efforts undertaken by WMT's top management to sweep those illegal activities under the rug rather than to report them to the authorities. I thought that the article was just devastating to WMT's image. The current CEO may be taking early retirement soon, an observation made by Reuters or anyone reading the NYT exposé.

The absence of any meaningful prosecutions by the Justice Department against those responsible for the Near Depression shows that there are persons in the U.S. who are in fact above the law. So far above the law that it is not even necessary to defend themselves against criminal charges, since those charges will not even be sought. And those people not only escaped prosecution, but frequently became absurdly wealthy due to their activities.

During last night's broadcast, Sixty Minutes highlighted part of the case against former executives at Lehman Brothers, which of course has not been brought by either the SEC or the Justice Department. CBS News Instead, that story raised an issue that government employees, who were ensconced at Lehman's headquarter's before the collapse, knew about materially misleading financial statements issued by Lehman, and did not warn investors who were still buying the common stock and other securities in the months leading up to Lehman's bankruptcy filing on September 15, 2008. That may explain why no charges have been filed against Lehman executives.1. First Niagara (own 350+ shares:Regional Bank Basket Strategy):First Niagara reported adjusted earnings of 19 cents per share, or 16 cents on a GAAP basis which included merger related and acquisition charges. If one wanted to also exclude the carrying costs of the funding needed to close the purchase of the HSBC branches, then the 1st quarter earnings were comparable to the 24 cents earned in the first quarter of 2011.

Net interest margin for the first quarter was 3.34%, a 14 basis point drop from the 2011 4th quarter. As of 3/31/2012, the efficiency ratio was 59.08%; NPAs stood at .34% of total assets; the return on average assets was .73%; the Texas ratio was 8.73%; the allowance for loan losses to NPLs was 111% (down from 137.7% as of 12/31/2011); the tangible common equity ratio to tangible assets was 8.13%; and the total risk based capital ratio was 15.65%.

While management patted themselves on the back for this report, Sandler O'Neill cut the stock to hold, and Barclay's reduced the price target to $11 from $12. Before the earnings report, Citigroup started FNFG with a hold and a $10 price target. Item # 3 FNFG

2. Added 100 FTE at $13.17-Averaged Down Last Thursday (see Disclaimer): France Telecom has been hitting new 52 weeks regularly since I reinitiated a position at $14.82 about five weeks ago. I have nothing to add to that discussion other than the stock has become cheaper since that purchase. FTE Key Statistics Based on the closing price last Friday of $13.26, the trailing P/E is 6.88; price to sales is .58; and price to book is .94.

Other than the routine news items about Europe's problems, I have not seen anything about FTE in particular that would account for the weakness. Over the past several weeks, the prospects of Nicolas Sarkozy winning reelection have faded, and the Socialist Francois Hollande appeard likely to win a run-off election on May 6th. MarketWatch

On June 5, 2012, FTE will go ex dividend. Normally FTE will pay dividends twice a year. The dividend is €.8 per ordinary share (share dividend), and FTE is an ADR equal to one ordinary share.

Morningstar has a five star rating on FTE shares with a consider to buy price at $19.6 or below.

On the day of my purchase, France Telecom ordinary shares, FTE.PA, close at €9.92, down 3.15% on the Paris exchange. Based on a conversion rate for the EUR/USD, the NYSE listed ADRs would have a value of $13.02. The shares in Paris traded as high as €10.32, approximately equivalent to an ADR price of $13.55. I bought the ADR shares after the shares started to slide on the Paris exchange but before they finished sliding last Thursday.

France Telecom rose 18 cents in trading last Friday to close at $13.26.

Both securities have as their underlying security a GS TP maturing in 2034. Both have $25 par values. Both securities pay the greater of their respective minimum coupons or .85% above the 3 month LIBOR rate. GYB has a minimum coupon of 3.25% and a maximum coupon of 8.25%, while PYT is lower by .25% on both the minimum and maximum coupons.

Friday, April 20, 2012

It is virtually impossible for me to see how Spain's banks can avoid a government bailout. With bad real estate loans piling up from the bursting of a housing bubble and a 23% unemployment rate, nonperforming loans have to increase from the already troublesome levels. (see generally articles at Bloomberg, WSJ and Reuters) If the truth was really known about the full extent of their bad loans, I suspect that most of the Spanish banks would now be declared hopelessly insolvent.

Spain's IBEX 35 Index fell below 7000 yesterday and is now below where it stood in March 2009. On 4/2/12, that index closed at 8040.82, and at 6,908.1 yesterday. The two year high was hit in February 2011 at 11,068.1.

The LT Huntington Bankshares moved into my profit column after reporting net income of $153.3 million, or 17 cents per share, for the first quarter, beating the consensus estimate of 14 cents.

1. S.Y. Bancorp (own 50 shares:Regional Bank Basket Strategy):S.Y. Bancorp reported net income of $6.502 million for the 1st quarter or 47 cents per share, up from 40 cents in the year ago quarter. The consensus estimate generated by six analysts was for 43 cents.

As of 3/31/2012, the net interest margin was 4.07%; the efficiency ratio was 52.32%; the total risk based capital ratio was 14.39%; the Tier 1 risk-based capital ratio was 13.13%; the annualized return on average assets was 1.29%; NPLs stood at 1.9% of total loans; the allowance for loan losses to NPLs was 107.35%; and the ratio of tangible common equity to tangible assets was at 9.37%.

2. Valley National Bank (own 250 shares: Regional Bank Basket Strategy): Valley National Bancorp declared a 5% stock dividend payable May 25 to shareholders of record May 11. This bank has declared a stock dividend for 21 straight years. I do not regard that as important. I am far more interested in dividend increases. It is material that the dividend increase is applied to a higher share count. VLY's history of dividend increases since 1986 can be found at its website. Valley National Bank In early 1987, the quarterly rate was $.0398 per share. That rate has been increased every year to the current rate of $.1725.

3. Horizon Bancorp (HBNC) (own 50 shares:Regional Bank Basket Strategy):Horizon Bancorp reported first quarter earnings of 88 cents per diluted share, up from 49 cents for the first quarter of 2011. The consensus estimate generated by 4 analysts was for 60 cents.

Tangible book value per share rose to $21.35 from $18.11 as of 3/11/11.

As of 3/31/2012, the net interest margin was 3.87%; NPLs to total loans stood at 2.11%; the return on average assets was at 1.23%; the total capital to risk weighted assets ratio was 13.03%; and the tier 1 capital to average assets ratio was 8.54%.

The earnings were released about one hour before the market close last Wednesday. The stock immediately popped, rising 5.35% or $.97 to close at $19.09. Volume increased to 61,706 from an average of 12,604.

Horizon Bancorp shares rose another $2.11 in trading yesterday to close at $21.2.

4. First Bancorp (own 50+ shares: Regional Bank Basket Strategy): The First Bancorp, a small bank operating in Maine, reported net income of $2.9 million for the first quarter or 28 cents per share, down 1 cent per share from the first quarter of 2011.

As of 3/31/2012, the net interest margin was 3.22%; the GAAP efficiency ratio was 51.6%; the return on average assets was .84%; NPLs to total loans increased to 2.81% (up from 2.51% as of 3/31/2011); and the tangible book value per share was $11.34. The capital ratios remain above the levels for well capitalized banks:

Thursday, April 19, 2012

The GOP plans to cut the top tax rate to 25% for both individuals and corporations, claiming that they will target the elimination of other tax code provisions to make their generosity revenue neutral. Romney recently identified some provisions that he probably would eliminate--the wealthy's deductions for state income taxes and mortgage interest for second homes. As you would expect, the numbers do not add up to being anywhere close to revenue neutral, as pointed out by James Kwak in this article at The Baseline Scenario; Simon Johnson's column at the NYT; and in the The Atlantic magazine. An article by Jay Bookman in the AGC points out all of the tax credits, exclusions and deductions that would have to be cut to pay for the reduction in tax rates. Those items include the mortgage interest deduction, earned income tax credit, deduction for property taxes, accelerated depreciation, child credit, and many more.

It is incomprehensible why anyone (other than TBs) believes, based on the historical record, that either the Democrats or the Republicans will do anything constructive to avert a financial meltdown that will eventually be caused by the federal government's debt. Again, I would simply highlight that the total debt of the U.S. was less than 1 trillion dollars when Ronald Reagan first became President. The U.S. debt was $907.2 billion in 1980. (Appendix in article at United States public debt). It is now $15.661+ Trillion. Debt to the Penny (Daily History Search Application).

Motley Fool took the article about Xinyuan Real Estate, which contained incorrect information about XIN's 4th quarter earnings, off its website yesterday. See Item # 4 in Yesterday's Post: Motley Fool Article on Xinyuan Consequently, it is no longer available for viewing. After increasing its annual dividend rate from 10 cents to 16 cents per ADS share, and changing the distribution from an annual to quarterly payments, Xinyuan Real Estate rose 14 cents in trading yesterday to close at $3.55.

The shareholders of FirstMerit voted against that bank's executive compensation plan. WSJ I will be interested to see the First Niagara results.

1. New Exchange Traded Bonds: A number of companies have listed new exchange traded bonds this year. None of them are attractive to me at their current prices. I have them on my exchange traded bond monitor list just in case the prices dive for no good reason.

I hope this trend continues. Bonds should trade like stocks. All of the foregoing are traded on U.S. stock exchanges just like common stocks.

A bond recently issued by Hercules Technology Growth Securities will likely start trading on the stock exchange around 4/30 under the symbol HTGZ. SEC Form 8-A I own the common shares HTGC which will voluntarily delist from the Nasdaq in order to join the NYSE. The Hercules senior bond has a 7% coupon and matures on 4/30/19. Filed Pursuant to Rule 497

2. Intel (own 273+ shares): A snapshot of my Intel share purchases can be found at Intel. I quit using the dividend to purchase more shares after September 2011. All of those purchases were made with cash flow from dividends and interest payments.

Intel reported first quarter adjusted net income of 56 cents per share on revenues of $12.9 billion. The consensus estimate was for 50 cents on $12.84 billion in sales. SEC Filed Press Release The GAAP number was 53 cents. The non-GAAP E.P.S. excludes the amortization of acquisition-related intangible assets and the related income tax effect. The company generated approximately $3 billion in cash from operations during the quarter and repurchased $1.5 billion in stock.

Intel shares declined 52 cents in trading yesterday to close at $27.94.

My total average cost per share is $17.82:

Unrealized Gain As of Yesterday's Close=+$2,768.02

Importantly, the dividend yield at a total cost of $17.82 is about 4.71%, based on the current quarterly dividend of 21 cents per share. Intel Corporation - Dividend Summary Since the cost per share remains constant with no additional purchases, the yield will continue to rise whenever Intel increases the rate.

3. New York Community Bank (own 150 shares:Regional Bank Basket Strategy):New York Community Bancorp reported GAAP earnings per share of 27 cents for the 2012 first quarter, one cent better than the consensus estimate. The Board declared the regular 25 cent per share quarterly dividend.

As of 3/31/12, the net interest margin was 3.24%; the cash efficiency ratio was 39.94% and 41.39% using GAAP; the return on average tangible assets was 1.24%; the tangible equity to tangible assets ratio was 7.64%; NPLs to total loans stood at .85%; and the allowance for loan losses on non-covered loans to non-performing non-covered loans was 44.68%.

New York Community Bancorp shares declined 32 cents in trading yesterday to close at $13.33. While it is questionable whether this bank can continue to pay a 25 cent share quarterly dividend unless earnings significantly improve (item # 2 NYB), the dividend yield at that rate is about 7.5% at a total cost of $13.33 per share.

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About Me

I am no longer in a capital accumulation phase. My key investment objectives are capital preservation and income generation.
I started to buy stocks in the late 1960s.
I have a balanced worldwide portfolio with a considerable allocation to cash. Starting in December 2016, I started to reallocate out of cash and into high quality short and intermediate term bonds and FDIC insured CDs using a ladder strategy.
I have been paring my stock allocation, selling gradually into the robust stock market rally occurring since the U.S. election.
In this blog, I will be discussing only a sample of my recent stock trades. I will be discussing almost all of my bond and CD trades.

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Disclaimer

I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this blog, I am acting solely as a financial journalist focusing on my own investments. The information contained in this blog is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this blog is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. For purchases of bonds and preferred stocks, the prospectuses need to be reviewed until fully understood by the investor.